There’s a great quote by Wayne Gretzky, who many consider to be the best hockey player to ever play the game: “Skate to where the puck is going, not where it’s been.” The line is used over and over again in the business world as a way to remind product-makers and managers to be more forward thinking. Because, the natural tendency in life and business is to just keep doing what already works; the rational being, “Well it’s always worked!” While that kind of rationality offers a safety net of sorts, it fails to accommodate one of the biggest forces of nature: evolution, or the innate need to adapt to an environment in order to survive and later thrive. Inventors and product makers must imagine the future, “where the puck is going” and then make sure to be there when the puck finally arrives. That’s why this line gets regurgitated endlessly in business and finance. It’s definitely not because everyone’s a hockey fan, but in a highly competitive business environment, in which basic strategy mimics that of athletic and animalistic competition, one sure way to gain an edge over your competitor is simply to be multiple steps ahead. To be ahead of the play, is to be prepared. And to be prepared, means better odds at winning the game.
But how do you know where the puck is going to be? That’s the real question to consider, isn’t it? How do you know where and when to “skate”? Some performance experts would argue that to achieve such an intuition for a skill, you need to invest a very specific and significant amount of time practicing. The best-selling author and New Yorker staff-writer, Malcolm Gladwell happens to be one of those people. On the subject of high-performance, Gladwell writes:
Achievement is talent plus preparation. But the ten-thousand-hour research reminds us that “the closer psychologists look at the careers of the gifted, the smaller the role innate talent seems to play and the bigger the role preparation seems to play.” In cognitively demanding fields, there are no naturals. Nobody walks into an operating room, straight out of a surgical rotation, and does world-class neurosurgery. And second—and more crucially for the theme of Outliers—the amount of practice necessary for exceptional performance is so extensive that people who end up on top need help.
The repetition of practice is what gives the practitioner the gift and perspective of experience. The wisdom garnered through experience is one of the things that offers investors superior investing insights. When you become proficient enough at a skill, your abilities to understand what’s playing out all around you no longer requires a total conscious effort. In the Nobel laureate, Daniel Kahneman‘s work and top-choice investing book, Thinking Fast and Slow, you’re introduced to this idea. Essentially, there comes a point in time in which a task that’s been repeatedly performed becomes so fluid, that it’s transferred from your brain’s System 2 thinking, to System 1 thinking. And unlike System 2, which is slow and calculating, System 1 thinking is super fast and instinctive. It’s why you often hear sports broadcasters gushing about players who seem to have “A feel for the game.” This phenomenon of instinctively quick performance is exactly what they’re referencing. A player’s ability to unconsciously understand an environment and make real-time adjustments faster than any spectator can imagine; to everyone watching, looks like magic.
When it comes to skating to where the puck is going in stock investing, two stories immediately come to mind. This first is that of the late Sir John Templeton. Sir John was an American-born British businessman and investor, who made one of the all-time greatest plays in terms of skating to where the puck was going. In 1930, as America was deeply hurting from the great stock market crash of 1929, and in the midst of depression, Sir John recognized the temporariness of the deflated economic environment. In fact, he was so confident of his theory, that he didn’t even need to pick individual companies. Sir John simply purchased 100 shares of every NYSE listed company that was trading for less than $1 a share ($17 today). While some of the companies John bought, did ultimately fail, many survived the depression, returning John’s investment with spectacular profits. You didn’t need to be the world’s best stock picker in 1930. All you had to know was that America was going to win.
If Sir John’s story sounds a little familiar, it’s because it is. Our good friend, Mr. Buffett did something very similar in the during the latest downturn of the economy. On October 17th, 2008, Buffett published the following Op-Ed piece in the New York Times. At the time, the DJI was trading at $8,852.22.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.
On the day of publishing, March 29th, 2016 the DJI is trading at $17,630, or 96% higher than on October 17th, 2008. Buffett even quotes Gretzky in his article. If all you did was listen to Buffett and buy the DJI, you’d be looking at an average return of just over 12% annually for the past eight years. Once again, America won.
Nelson Obus, is a founding partner of Wynnefield Capital. When we sat down to interview him, one of the things Nelson brought up was a comparison of investing to gambling. To be clear, Nelson isn’t suggesting that investing is equivalent to gambling, rather, as someone who has first-hand experience applying game-theory, Obus raises some solid points about knowing when to make a move:
Now one thing that it provided me with is a whole slew of variables that had to be considered when deciding who might win a race, so that’s the analytical process and I think anybody that looks at stocks would also recognize that it’s not just one thing. There are a number of critical variables. From time to time, you have to focus on one versus the other and that’s analysis, but the other part of horseracing that’s so important is money management. It’s knowing that when you walk in there, it’s kind of like what Warren Buffett said, every race is like Mr. Market coming up to you and saying, “Do you want to get involved in this race? Do you have an opinion? How strong is your opinion? What’s your risk/reward,” and you’re not going to be successful unless you spot bet. You have to be very selective where you think you have an edge. Otherwise, you get destroyed.
(Watch the full conversation in The Manual of Ideas Members Area.)
If you had a crystal ball which revealed the all the future outcomes of all the world’s events and economic cycles, would you know how to use it? The Gretzky idea about skating to where the puck is going, is really just about capitalizing on opportunities. When you look for ideas, you’re actually looking at opportunities. Applied to the market, this is exactly what Ben Graham is referring to, when he wrote about Mr. Market. Each day is like a new hand, with new cards, and you get to decide whether or not you want to make a play. The real valuable nugget in this idea, is that sometimes all you need to do is to just be in the right place at the right time. The more you read, and compound your business experience and wisdom, the better you’ll become at showing up in the right places.